18 November 2010 1

Slides download: http://www.romlux.org/forum/viewtopic.php?t=514

18 November 2010 2

Outsourcing IT Outsourcing IT

by Michael Muller15 years of successful experience in outsourcing as:- Director of Business Intelligence , Syniverse USA- Vice-President and General Manager of Product Management, Cibernet USA- Head of Product Management MACH – Luxembourg - Head of Staff Engineers, Siemens SA,

by Michael Muller15 years of successful experience in outsourcing as:- Director of Business Intelligence , Syniverse USA- Vice-President and General Manager of Product Management, Cibernet USA- Head of Product Management MACH – Luxembourg - Head of Staff Engineers, Siemens SA,

• What projects can be outsourced?• How to outsource?• Errors in outsourcing • Advantages, benefits and costs• Concrete cases: Romania and Asia

• What projects can be outsourced?• How to outsource?• Errors in outsourcing • Advantages, benefits and costs• Concrete cases: Romania and Asia

“Le doute est l'ennemi des grandes entreprises”.

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What IT projects can be outsourced? Answer: ALL IT projects can be outsourced !

Outsourcing is:

1) a miracle cure to increase productivity, to decrease the time to market and to significantly cut costs,

2) a way to get professional services at a fraction of the price of hiring someone or a department full time,

3) a popular business model because it allows a company to remain focused on its core competencies,

4) a problem, while the outsourcing vendor turned out to be much more expensive than estimated,

5) an important financial loss and a commercial nightmare, a system that collapses and loses critical data : “30 per cent of projects undertaken by finance firms have led to legal action being taken” Fran Howarth,

principal analyst at Quocirca

-80

-60

-40

-20

0

20

40

60

80

1 2 3 4 5

Cost cut %

Productivity %

Time to market

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Errors in outsourcing“Your business model and the outsourcing business are not aligned.

Trusting an outside supplier to perform your company's business processes must not be an impulse purchase.”

1) Signing a wrong or an incomplete contract : “ you get what you contract for”. Service providers will do only what's absolutely necessary to get paid per your legal agreement, and nothing more.a) Few tips: they will try to: take the control of the project by justifying their estimations as being based on “their way of working”, replace the key members of the initial team, to share members of the team paid by you with other projects, overestimate efforts, point to management interface, dispute the feasibility of project goals, avoid the non-competition items, deadline penalties, etc.b) Overseas legal proceedings are impractical, and it may be impossible to determine where the team has dispersed to and where your work-in-progress now resides.

2) Use as interface a staff without technical background, lack of control and ambiguous instructions given by youThe sheer distance between your office and the outsourced labor organization is enough to cause problems in communication, which can lead to deadlines being blown or products being returned that are not up to expectations. In-house teams can be directly observed and errors can be spotted and fixed as they occur.

3) Giving your outsourced labor too much responsibility:The consequences could be the development of products or features you never asked for, or erroneous fixes to your current product that in no way resemble what you thought you ordered.

4) Paying before completion of tasksYou should always keep in mind that direct supervision is going to be a problem. Because of this, some unscrupulous overseas organizations will take full payment from your company and then abandon your project halfway through the deadline

5) Be unprepared for an urgent handover: failing to archive works-in-progress When outsourcing companies leave you in the lurch, it has to be possible to take corrective actions in order to continue your business.

6) Adding manpower to a late software project makes it later : An expert isn’t someone brought in at the last minute to share the blame.

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ASIA Industry of IT with high experience in outsourcing: 1) they know very well all details and phases of outsourcing process,2) deliveries following contractual statements,3) companies working with thousand of consultants; the better developers are hired by banks and large software companies and the less skilled left for everyone else,4) the skills mentioned in CVs should be divide by two,5) difficult and expensive to travel and to work in Europe: invitation, visa, delays, flight tickets6) overseas legal proceedings are difficult to win,7) English only,8) working time shift : + 4.5 hours, 9) major cultural differences: a) punctuality, b) lack of communication ; you have them re-phrase your instructions to confirm understanding, c) missing feed-back, d) the minutes of the each meeting are mandatory, e) the refuse to accept 'no' for an answer and continue to speak about how great their company and developers are, f) the deadline is considered more like “an indication” instead to

be mandatory. g) the PM without experience is treated poorly and is loosing

quickly the trust and the control of the team, h) minimal deliveries.

Romania:The industry of IT is recent:1) collaboration based on good relationships, 2) flexible targets,3) companies working with staffs having different level of skills,4) high qualified and motivated staff, high creativity, willing to learn,5) easy to travel and to stay in Europe, 6) similar legislations, facilitating legal procedures, 7) English, French, German, etc.,8) working time shift : + 1 hour,9) minor cultural differences: a) reluctant to detailed contracts, b) lack of qualified project management for major teams (more than 10 staffs) ; c) changes of requirements: “ I have done it better”, d) academic development style instead of an efficient one.

Romania versus Asia

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How to outsource ? (1)

1) Prepare the teams, the work breakdown structure, the project management framework, the documents and the code.

Documents associated to projects:Requests descriptionFeatures descriptionBusiness plan (internal)Functional specification TenderDevelopment plan (partials)High Level DesignTest SpecificationTest ResultsRelease notesUser manualTraining documentsTraining filmsPresentations red – documents (max) written by outsourcing team blue – in-house documents (min)

Internal developmentcore business

Interfaces

control

Doc. tests

Outsourcing to company 1

Outsourcing to company 3

Outsourcing to company 2

Outsourcing to company 4

2) The tender & contract:

a) “ you get what you pay for”, so let best practices and value determine your decision, not only price. Look for an IT support provider that uses best practices (agreed industry standards), has industry certifications that are relevant to your needs, and a support team with the infrastructure to handle a variety of issues

b) “you get what you contract for”: it's absolutely critical that the outsourcing contract is carefully thought out and absolutely watertight

c) “Fixed price” or “time material” ?

d) The contract describes the general framework, the task orders contains statements concerning the project

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3) Selection and training of teams:

a) All staffs proposed by the consultancy company appear to be very knowledgeable and professional. Your duty is to verify that. b) Do not assume your outsourcing team knows anything about your business, goals, history, or common practices.

4) Control (If everything seems to be going well, you have obviously overlooked something)

a) Partial deliveries. Keep in mind that it is unarguably more difficult to supervise a team of workers in another country than it is to manage one in your office building. You should strive to maintain at least weekly communication with your outsourcing team. Going long periods of time without checking in with the developers puts too much distance between you and potential problems or questions that should require immediate attention. (Webex, Centra)

b) Clear instructions: When giving instructions to outsourcing team, be as specific and detailed as possible, as language barriers and differences in culture can result in vastly different end-results than you had anticipated.

c) Team control: you have to know, personally, the name of the staff working for you, their e-mail address, phones, their current tasks and skills.

d) Code reading and testing

5) Try to understand the cultural differences and try to use them.

How to outsource ? (2)

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Advantages, benefits and costs

1. Cost cutting : until 80%, - direct and indirect labour costs, - hardware, telecom and development licenses,2. Highest flexibility,3. The company can remain focused on its core competencies,4. Way to increase the productivity,5. Fastest time to the market.

Attention:It has to be precise in Task Order : holidays, sickness days, personal

trainings are included or excluded?

Junior Senior Architect /P.M.

Average Team

India 30 100 120 90

Romania 50 150 170 140

Benelux 180 500 600 450

Consultancy rates :averages (Euro)

Observations;- The rates have been calculated for large projects (at least 4 staff, for at least one year), holidays included- For charging the working days only (220 days/ year) the rates arising with 16%- For Bucharest the rates are higher with 20%

“No matter how good of a deal you get, the prices will always drop immediately after the purchase”

18 November 2010 9

The risk level of your project inoutsourcing

P1: How critical the outsourced business is ? P1 = (0 - 11), 0 for non-critical and 11 for very critical P2: Used methodology: a) Waterfall (Prince 2, V-model, Hermes etc): P2 = 0 b) Critical Chain Project Management ,: P2 = 3 c) Agile (SCRUM, Crystal Clear, etc): P2 = 10

P3: Licensing and copyright issues; outsourced projects may be copied and sold again to one of your competitors a) no risk: P3 = 0 b) highest risk: P3 = 9

P4: Risks associated to confidential and personal data a) no risk: P4 = 0 b) highest risk: P4 = 7

P5: Used platforms: a) standard: P5 = 0 b) customised : P5 = (1- 10)

P6: Type of task: a) Platform migration: P6 = 0 b) New project: P6 = 2 c) Handover: P6 = 5

P7: Time to market: a) free: P7 = 0 b) flexible: P7 = 1 c) fixed: P7 = 6

Risk (%) = P1 + P2 + P3 + P4 + P5 + P6 + P7 + P8 + P9 + P10 + P11 + P12 + P13

P8: Turnkey solution or services? a) Service P8 = 0 b) Turnkey solution: P8 = 5

P9: Timing failure critical business? a) 0-1 h ; P9 = 11 b) 1-24 h ; P9 = 7 c) 1- 7 days ; P9 = 2 d) more than 7 days; P9 = 0 P10: Delivery type: a) one shot: P10 = 0 b) ongoing: P10 = 6 P11: “Spaghetti code” risk (the quality of programming varies considerably): a) no risk : P11 = 0 b) highest risk: P11 = 4

P12: Dimension of the code: a) (1-50) mdays: P12 = 0 b) (50 – 440) mdays: P12 = 2 c) (440 – 2200)mdays: P12 = 7 | d) > 2200 mdays: P12 = 12

P13: Documents and terminology: a) Standard: P13 = 0 b) Customized: P13 = 4

Total points:

0-20: go ahead 20-40: go ahead after following two days training with an outsourcing expert40-60: involve punctually an outsourcing expert to supervise the key points of the project 60-80: at least one outsourcing expert should be full time in your team80-100: the risk is high! Think twice before starting such project!

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Service

Delivery

Key Account

Management

Global Product

Development

Data Clearing

Global

Operations

Data Clearing

DevelopmentFinancialClearingOperations

Financial

Clearing

Integration

Testing

Product definition

Client specific

projects

Sales

EMEA and Asia

Service

DeliveryGlobal ProductDevelopment

Global Operations

DevelopmentFinancial

Operations

Financial

Integration

Testing

Full product development

Client specific(customizations)

Migration

Large scale used tools

Operating systems, licenses

Conclusions:

a) For many Europeans, Eastern Europe has become more compelling than Asia. The pure labor arbitrage equation balance no longer.b) Outsourcing is not always a smooth transition from in-house labor. Problems frequently arise in communication, quality standards,

and managerial practicality, which can jeopardize entire operations if handled improperly.c) Handled properly, the outsourced teams have the potential not just to deliver results but to exceed your expectations.